The Week In Hindsight, 13 July 2014

Gold gained throughout much of last week, despite a sparsely populated economic data calendar, breaking through the $1300 level on the Wednesday as fears over European financial stability looked set to resurface.

The metal reached as high as $1345 during the final sessions of the week and closed Friday evening at $1335, above the all important psychological barrier ($1330). CFTC Commitments of Traders data indicates that net long positions in gold futures reached their highest level for 18 months during the period.

Despite the rapid gains, spot prices collapsed at the open of the European trading session on Monday as concerns over conflicts and European financial stability looked set to dissipate further.

Another factor behind the reduction in gold was also Tuesday and Wednesday’s scheduled testimony before Congress from Janet Yellen.  

It is likely that during her appearance she will repeat previous guidance as to the likely timing of the “final taper”. Although it is also likely that lawmakers will push for further information on the US interest rate outlook, we do not expect any new information to be forthcoming in response to this question.

Nevertheless, a dissipating sense of panic among investors combined with a schedule of events which will see further focus applied to tightening monetary policies in developed markets have left speculators with little incentive to remain long on the metal for the time being.

Despite that investors appear less concerned about geopolitical and financial risks for the time being, the immediate path ahead in relation to these is far from clear. Consequently, and although our longer term outlook for gold remains in place and unchanged (bearish); we do not envision a sustained break below the $1300 level over the days ahead.

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